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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported)
August 27, 1999 (August 18, 1999)
APPLIED VOICE RECOGNITION, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or Other Jurisdiction of Incorporation
0-23607 76-0513154
(Commission File Number) (IRS Employer Identification)
4615 POST OAK PLACE, SUITE 111, HOUSTON, TEXAS 77027
(Address and Principal Executive Offices) (Zip Code)
(713) 621-5678
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name of Address, If Changed Since Last Report)
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ITEM 5. OTHER EVENTS
PRIVATE PLACEMENT OF SERIES E PREFERRED STOCK
On August 18, 1999, Applied Voice Recognition, Inc. doing business as e-DOCS.net
(the "Company") completed the sale, in a private placement, of 2,000 shares of
Series E Preferred Stock and a warrant to purchase 400,000 shares of common
stock (the "Warrant"), for gross proceeds of $2,000,000. The proceeds consisted
of approximately $1,500,000 cash and the conversion of a $500,000 convertible
promissory note. The sale of the Series E Preferred Stock and the Warrant were
made to an affiliate of a member of the Company's Board of Directors.
The Series E Preferred Stock, par $.10 per share, accrues dividends at a rate of
6% per annum on the original issue price of $1,000 per share plus accrued and
unpaid dividends. Dividends are payable quarterly in arrears, in either cash or
common stock at the Company's option. If the Company elects to pay the dividends
in common stock, the number of shares of common stock to be issued will be based
on the 30 day average closing price prior to the dividend date. The Warrant has
an initial exercise price of $1.25, subject to certain anti-dilution provisions,
and expires August 31, 2003.
Each share of Series E Preferred Stock is initially convertible into 1,000
shares of common stock, subject to certain anti-dilution provisions. The Series
E Preferred Stock automatically converts upon an underwritten public offering of
the Company's securities for $25,000,000 or more, or the Company's stock begins
trading on the Nasdaq SmallCap Market. The Company may redeem any non-converted
shares of Series E Preferred Stock after August 31, 2004, at a redemption price
of $1,000 per share plus accrued but unpaid dividends, upon 30 days written
notice. The Company has agreed to register, at any time after November 16, 1999,
the common stock issuable pursuant to a conversion of the Series E Preferred
Stock and the exercise of the Warrant upon written request from the Series E
Preferred Stockholders, subject to a minimum request for registration of not
less than $300,000 of common stock.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series E Preferred Stock shall
be entitled to be paid out of the assets of the Company available for
distribution to stockholders, after the payment or declaration and setting apart
for payment of any amount with respect to the Series A, Series B, Series C, and
Series D Preferred Stock, and before any payment or declaration and setting
apart for payment of any amount shall have been made with respect to Series 1 or
Series 2 Preferred Stock, $1,000 per share plus accrued dividends (the
"Liquidation Preference"). Upon a change in control of the Company, as defined
in the Series E Preferred Stock Certificate of Designation, Preferences, Rights
and Limitation, which all of the Series E Preferred Stock in not purchased for
at least 125% of the Liquidation Preference, the Company shall offer to redeem
the outstanding shares of Series E Preferred Stock for $1,000 per share plus
accrued dividends.
The Company has agreed, as long as Daniel Dornier or any affiliate of Daniel
Dornier shall own 5% of the common stock of the Company, that the Company will
use its best efforts to have Daniel Dornier elected to the Board of Directors of
the Company. Daniel Dornier is currently a member of the Board of Directors of
the Company.
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ITEM 7. FINANCIAL STATEMENT AND EXHIBITS
(c) Exhibits
3.1 Certificate of Designation, Preferences, Rights and Limitations of Series E
Preferred Stock of the Company.
4.1 Registration Rights Agreement between the Company and Greenwich, AG, dated
August 18, 1999.
4.2 Form of Warrant issued to Greenwich, AG dated August 18, 1999.
10.1 Series E Preferred Stock and Warrant Purchase Agreement, between the
Company and Greenwich, AG dated August 18, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Applied Voice Recognition, Inc.
Date: August 27, 1999
/s/ Richard A. Cabrera
Richard A. Cabrera
Chief Financial Officer and Secretary
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES E PREFERRED STOCK
OF
APPLIED VOICE RECOGNITION, INC.
PURSUANT to Section 151(g) of the Delaware General Corporation Law (the
"DGCL"), APPLIED VOICE RECOGNITION, INC., a corporation organized and existing
under the DGCL and doing business as e-DOCS.net (herein referred to as the
"Corporation"), DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of the
Corporation by its Certificate of Incorporation, and pursuant to the provisions
of Section 151(g) of the DGCL, such Board of Directors, by unanimous consent of
the directors dated August 12, 1999, duly adopted a resolution providing for the
issuance of a series of five thousand (5,000) shares of the Corporation's
Preferred Stock, par value $0.10 per share, to be designated "Series E Preferred
Stock," and fixing the voting powers, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, all pursuant to this Certificate of Designation, Rights and Preferences
of Series E Preferred Stock of Applied Voice Recognition, Inc. (the "Certificate
of Designation"), which resolution is as follows:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Corporation in accordance with the provisions of
its Certificate of Incorporation, there shall be established and authorized for
issuance a series of the Corporation's Preferred Stock, par value $0.10 per
share, designated "Series E Preferred Stock" (herein referred to as "Series E
Preferred Stock"), consisting of five thousand (5,000) shares, each of the par
value of $0.10 per share, and having the voting powers, preferences and
relative, participating, optional and other rights, and the qualifications,
limitations or restrictions set forth below:
A. DESIGNATION. The Preferred Stock having the rights,
preferences, privileges and restrictions set forth below shall be designated and
known as "Series E Preferred Stock."
B. NUMBER OF SHARES OF SERIES E PREFERRED STOCK. The number of
shares constituting all of the Series E Preferred Stock shall be five thousand
(5,000).
C. DIVIDENDS. The holders of the then outstanding shares of the
Series E Preferred Stock shall be entitled to dividends ("Preferred Dividends")
equal to the original issue price of $1,000 per share, plus accrued (whether or
not declared) and unpaid dividends (the "Liquidation Preference") times six
percent (6%) per annum per share of Series E Preferred Stock, payable quarterly
in arrears, which Preferred Dividends shall be paid in cash or in shares of
Common Stock, $0.001 par value per share, of the Corporation ("Common Stock"),
at the Corporation's option. In the event the Corporation elects to pay any such
Preferred Dividends in Common Stock, the number of shares of Common Stock to be
issued as Preferred Dividends pursuant hereto shall be based upon the thirty
(30) day average closing price immediately prior to the dividend date of the
Common Stock on the Nasdaq Over the Counter Bulletin Board (the "OTCBB"). If the
Common Stock is no longer trading on the OTCBB, then the number of shares of
Common Stock to be issued as Preferred Dividends shall be based upon such other
trading forum or exchange, if any, under which the Common Stock is trading, and
if no established market exists for the Common Stock, the Board of Directors of
the Corporation (the "Board of Directors") shall
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determine the number of shares of Common Stock to be issued as Preferred
Dividends in the exercise of their reasonable discretion. Preferred Dividends
shall, when and as declared by the Corporation's Board of Directors, be payable
quarterly on the first day of each January, April, July and October, commencing
upon the later of October 1, 1999, or on the first such date following the
issuance of such shares, except that if such date is not a business day, then
such dividends shall be payable on the first business day immediately succeeding
that day. No dividend shall be declared or paid if such declaration or payment
would result in a violation of the DGCL. The dividends on each share of Series E
Preferred Stock shall begin to accrue from the date of issuance of the Series E
Preferred Stock. Dividends in arrears for any past dividend periods may be
declared and paid at any time, without reference to any regular dividend payment
date, to holders of record on a record date fixed for such payment by the Board
of Directors of the Corporation.
The Preferred Dividends shall be cumulative, and no dividends
shall be declared or paid with respect to the Common Stock or any class of stock
ranking, as to dividend rights, junior to the Series E Preferred Stock, until
all accrued Preferred Dividends have been paid, or declared and, if dividends
are to be paid in Common Stock, shares of Common Stock are set apart for
payment, for the current and all prior dividend periods. Payment of Preferred
Dividends shall be in preference to dividends on Series 1 Preferred Stock,
Series 2 Preferred Stock, Common Stock or any other shares of stock of the
Corporation ranking junior to the Series E Preferred Stock (the "Junior Stock"),
and shall be junior to payment of dividends on the Corporation's Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock (the "Senior Stock").
Each holder of shares of Series E Preferred Stock shall represent
to the Corporation that it is not subject to Backup Withholding (as described in
the Internal Revenue Code of 1986, as amended). In the event the Corporation
shall not have received such representation in the manner required by law, the
Corporation shall be permitted to withhold from any dividends paid in accordance
with this Section C an amount deemed necessary by the Corporation to comply with
the Backup Withholding requirements. In the event the Corporation has elected to
pay a dividend in shares of Common Stock, the Corporation shall be permitted to
pay such portion of the applicable dividend in cash as shall be necessary to pay
the Backup Withholding, and the cash portion shall be paid to the United States
Treasury for credit to the Backup Withholding amounts which the Corporation is
responsible to pay on behalf of the applicable holder.
D. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series E Preferred Stock shall be entitled to be paid out of
the assets of the Corporation available for distribution to its shareholders,
after the payment or declaration and setting apart for payment of any amount
required with respect to the Senior Stock, and before any payment or declaration
and setting apart for payment of any amount shall have been made with respect to
the Junior Stock, One Thousand Dollars and 00/100s ($1,000.00) per share, plus
an amount per share equal to all accrued (whether or not declared) but unpaid
dividends, and no more. If upon the occurrence of such event the assets
distributable among the holders of the Series E Preferred Stock shall be
insufficient to permit the payment of the full preferential amounts for the
Series E Preferred Stock, then the assets and funds of the Corporation legally
available for distribution to such holders shall be distributed among the
holders of the Series E Preferred Stock then outstanding ratably per share in
proportion to the full preferential amounts per share to which they are
respectively entitled. After the payment or distribution to the holders of the
Series E Preferred Stock of their full preferential amounts have been made, the
holders of Series E Preferred Stock shall not be entitled to any additional
distributions with respect to the Series E Preferred Stock.
<PAGE>
At each holder's option, a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section D. Any
event described in the prior clause that the holder elects to treat as a
liquidation, shall be treated pursuant to the terms of the following paragraph
(a holder who elects to have the transaction treated as a liquidation is herein
referred to as a "Liquidating Holder"). Any event described in the first
sentence of this paragraph that the holder does not elect to be treated as a
liquidation shall be treated pursuant to the terms of paragraph G(ii) below. The
Corporation shall not effect any transaction described in this paragraph unless
it first gives fifteen (15) calendar days prior written notice of such
liquidation event (during which time the holders of the Series E Preferred stock
shall be entitled to convert their Series E Preferred Stock into shares of
Common Stock to the extent permitted hereby).
Prior to the closing of a transaction described in the preceding
paragraph which would constitute a liquidation event, the Corporation shall
either (i) make all cash distributions it is required to make to the Liquidating
Holders pursuant to the first sentence of the first paragraph of this Section D,
(ii) set aside sufficient funds from which the cash distributions to the
Liquidating Holders can be made, or (iii) establish an escrow or other similar
arrangement with a third party pursuant to which the proceeds payable to the
Corporation from a sale of all or substantially all of the assets of the
Corporation will be used to make the liquidating payments to the Liquidating
Holders immediately after the consummation of such sale. In the event that the
Corporation has not fully complied with either of the foregoing alternatives,
the Corporation shall either: (x) cause such closing to be postponed until such
cash distributions have been made, or (y) cancel such transaction, in which case
the rights of the holders or other arrangements shall be the same as existing
immediately prior to such proposed transaction.
E. REDEMPTION.
(i) Any shares of the Series E Preferred Stock that have
not been converted to Common Stock by August 31, 2004, may, at the option of the
Corporation, at any time thereafter be redeemed at a redemption price of One
Thousand Dollars and 00/100s ($1,000.00) per share plus any accrued (whether or
not declared) but unpaid dividends (the actual date of redemption being referred
to as the "Preferred Stock Redemption Date"). In such instance, either all or
none of the outstanding shares of Series E Preferred Stock must be redeemed. The
Corporation agrees to provide at least thirty (30) days prior notice of such
redemption. After receiving such notice, the holders of Series E Preferred Stock
shall be permitted to convert such shares to Common Stock prior to the Preferred
Stock Redemption Date, which conversion shall be pursuant to Section F below.
(ii) If on or before the Preferred Stock Redemption Date
all funds necessary for such redemption have been set aside by the Corporation,
separate and apart from its other funds in trust for the pro rata benefit of the
holders of the Series E Preferred Stock, so as to be and continue to be
available therefor, then from and after the Preferred Stock Redemption Date,
notwithstanding that any certificate for shares of the Series E Preferred Stock
shall not have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding, and all rights with respect to shares of
the Series E Preferred Stock shall forthwith on the Preferred Stock Redemption
Date cease and terminate except only as to the right of the holders thereof to
receive the redemption price of such shares so to be redeemed. Any monies so set
aside by the Corporation and unclaimed at the end of five (5) years from the
Preferred Stock Redemption Date shall revert to the general funds of the
Corporation (provided that the holders of Series E Preferred Stock have received
notice of the redemption within 90 days after the Preferred Stock Redemption
Date).
(iii) The respective holders of record of the Series E
Preferred Stock to be redeemed shall be entitled to receive the redemption price
upon actual delivery to the Corporation of certificates for the shares to be
redeemed, duly endorsed in blank or accompanied by proper instruments of
assignment and transfer duly endorsed in blank.
<PAGE>
F. CONVERSION RIGHTS; MANDATORY CONVERSION.
(i) Each holder of shares of Series E Preferred Stock
shall be entitled to cause any or all of such shares to be converted into Common
Stock. Each share of Series E Preferred Stock is initially convertible into one
thousand (1,000) shares of Common Stock (subject to adjustment as provided
below). The initial conversion price shall be $1.00 per share (such price, as
adjusted in accordance herewith being referred to as the "Conversion Price").
Notwithstanding the foregoing, in the event either (i) the Corporation completes
a public underwritten offering of its securities for the account of the
Corporation in the aggregate amount of $25,000,000 or more, or (ii) the
Corporation's Common Stock begins trading on the Nasdaq Small Cap Market, each
holder of shares of the Series E Preferred Stock shall be obligated to convert
all of their shares into shares of Common Stock in accordance with this Section
F.
(ii) Each holder of Series E Preferred Stock desiring to
convert any or all of such shares into shares of Common Stock pursuant to
paragraph (i) of this Section F shall surrender the certificate or certificates
representing the shares of Series E Preferred Stock being converted, duly
assigned or endorsed for conversion (or accompanied by duly executed stock
powers relating thereto), at the principal executive office of the Corporation
or the offices of the transfer agent for the Series E Preferred Stock or such
office or offices in the continental United States of an agent for conversion as
may from time to time be designed by notice to the holders of the Series E
Preferred Stock by the Corporation or the transfer agent for the Series E
Preferred Stock, accompanied by written notice of conversion. Such notice of
conversion shall specify (1) the number of shares of Series E Preferred Stock to
be converted and (2) the address to which such holder wishes delivery to be made
of such new certificates to be issued upon such conversion.
(iii) Upon surrender of a certificate representing a share
or shares of Series E Preferred Stock for conversion pursuant to paragraph (i)
of this Section F, the Corporation shall, within five (5) business days of such
surrender, issue and send (with receipt to be acknowledged) to the holder
thereof, at the address designated by such holder, a certificate or certificates
for the number of validly issued, fully paid and non-assessable shares of Common
Stock to which such holder shall be entitled upon conversion. In the event that
there shall have been surrendered a certificate or certificates representing
shares of Series E Preferred Stock, only part of which are to be converted, the
Corporation shall issue and deliver to such holder a new certificate or
certificates representing the number of shares of Series E Preferred Stock which
shall not have been converted.
(iv) The issuance by the Corporation of shares of Common
Stock pursuant to paragraph (i) of this Section F shall be effective as of the
earlier of (1) the delivery to such holder of the certificates representing the
shares of Common Stock issued upon conversion thereof, or (2) immediately prior
to the close of business on the day of surrender of the certificate or
certificates for the shares of Series E Preferred Stock to be converted, duly
assigned or endorsed for conversion (or accompanied by duly executed stock
powers relating thereto) as provided in this Certificate of Incorporation. On
and after the effective day of the conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustment shall be made in respect of dividends payable to holders
of Common Stock of record on any date prior to such effective date.
(v) The Corporation shall not be obligated to issue and
deliver any fractional share of Common Stock upon any conversion of shares of
Series E Preferred Stock, but in lieu thereof shall pay to the holder converting
such Series E Preferred Stock an amount of cash equal to the fractional share of
Common Stock that otherwise would have been issued upon conversion rounded to
the nearest 1/100th of a share of Common Stock multiplied by the current market
price (as reasonably determined by the Corporation) on the business day
preceding the effective date of the conversion.
(vi) The Corporation shall at all times reserve and keep
available out of its authorized and unissued Common Stock or treasury shares,
solely for issuance upon the conversion of shares of Series E Preferred Stock as
herein provided, free from any preemptive rights, such number of shares of
Common
<PAGE>
Stock as shall be issuable upon the conversion of all the shares of Series E
Preferred Stock then outstanding at the then current Conversion Price.
G. ANTI-DILUTION ADJUSTMENTS.
(i) In case the Corporation shall at any time change as a
whole, by subdivision or combination in any manner or by the making of a stock
dividend, the number of outstanding shares of Common Stock into a different
number of shares (i.e. forward or reverse stock split), (i) the number of shares
of Common Stock to which the holders of Series E Preferred Stock may convert
such Series E Preferred Stock shall be increased or decreased in direct
proportion to such increase or decrease of shares, as the case may be, and (ii)
the Conversion Price (but not the aggregate Conversion Price) in effect
immediately prior to such change shall be increased or decreased in inverse
proportion to such increase or decrease of shares, as the case may be.
(ii) If, prior to the conversion of all the Series E
Preferred Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Corporation shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Corporation or another entity or there is a sale of all or
substantially all the Corporation's assets that is not deemed to be a
liquidation pursuant to Section D hereof, then the holders of Series E Preferred
Stock shall thereafter have the right to receive upon conversion of Series E
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of shares of Common Stock, immediately theretofore issuable
upon conversion, such stock, securities and/or other assets which the holder
would have been entitled to receive in such transaction had the Series E
Preferred Stock been converted immediately prior to such transaction, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the holders of the Series E Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the conversion rate and the number of shares issuable upon conversion of the
Series E Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this subsection (ii) unless (a) it first gives fifteen (15) calendar days
prior notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event (during which time the
holders of the Series E Preferred stock shall be entitled to convert their
Series E Preferred Stock into shares of Common Stock to the extent permitted
hereby) and (b) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligation of the Corporation
under the Certificate of Incorporation of the Corporation, including the
obligation of this subsection (ii).
(iii) The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all time in good faith assist in the carrying out of
all the provisions of this paragraph and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series E Preferred Stock against impairment.
(iv) Upon the occurrence of each adjustment or
readjustment of the conversion rate pursuant to subparagraphs (i) and (ii)
above, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series E Preferred Stock a certificate signed by the Chief Financial
Officer of the Corporation setting forth (a) such adjustment or readjustment,
(b) the conversion rate at the time in effect, and (c) the number of shares of
Common Stock and the amount, if any of other property which at the time would be
received upon the conversion of his shares.
H. VOTING RIGHTS. Except as otherwise required by the DGCL or as
provided in Section J below, the holders of Series E Preferred Stock shall have
no voting rights, and no consent of any holder shall be required for the taking
of any corporate action.
<PAGE>
I. PROTECTIVE PROVISION. So long as shares of Series E Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote
or written consent of the holders of sixty-six and two-thirds percent (66-2/3%)
of the outstanding shares of the Series E Preferred Stock voting separately as a
class:
(i) amend, alter or repeal any provision of the
Certificate of Incorporation (including this Certificate of Designation) of the
Corporation so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Series E Preferred Stock or
any senior securities so as to affect adversely the Series E Preferred Stock;
(ii) authorize or issue, or increase the authorized amount
of any then existing or additional class or series of stock or any security
convertible into stock of such class or series, ranking as to dividends or as to
distributions in the event of a liquidation, dissolution or winding up of the
Corporation, on parity with or senior to the Series E Preferred Stock; and
(iii) do any act or thing not authorized or contemplated
by this Certificate of Designation, which would result in taxation of the
holders of shares of the Series E Preferred Stock under section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
J. CHANGE OF CONTROL. Upon a Change of Control (as defined below)
in which all of the Series E Preferred Stock is not purchased for an amount
equal to at least One Hundred Twenty Five Percent (125%) of the liquidation
preference set forth in Section E above, the Corporation shall offer to redeem
the outstanding shares of Series E Preferred Stock at the same price per share
that the holders would have received had they been redeemed pursuant to Section
E above. The Corporation agrees that it will provide not less than ten (10) days
prior notice to the holders of Series E Preferred Stock, and any stockholders
accepting such offer and tendering the certificate(s) representing their shares
of Series E Preferred Stock prior to the date set forth in such notice shall
have their shares redeemed in the manner described in Section E at or before the
effective date of the Change of Control. For purposes hereof "Change in Control"
shall mean:
(i) the stockholders of the Corporation approve a merger,
plan of reorganization, consolidation or share exchange with any other
corporation and immediately following such merger, plan of reorganization,
consolidation or share exchange, the holders of the voting securities of the
Corporation outstanding immediately prior thereto hold securities representing
fifty percent (50%) or less of the combined voting power of the voting
securities of the Corporation or such surviving entity outstanding immediately
after such merger, plan of reorganization, consolidation or share exchange;
provided, however, that notwithstanding the foregoing, a Change of Control shall
not be deemed to have occurred if one-half (1/2) or more of the members of the
Board of the Corporation or such surviving entity immediately after such merger,
plan of reorganization, consolidation or share exchange is comprised of persons
who served as directors of the Corporation immediately prior to such merger,
plan of reorganization, consolidation or share exchange; or
(ii) the Corporation becomes a party to a merger, plan of
reorganization, consolidation or share exchange in which either (i) the
Corporation will not be the surviving corporation or (ii) the Corporation will
be the surviving corporation and any outstanding shares of the Corporation's
Common Stock will be converted into shares of any other company (other than a
reincorporation or the establishment of a holding company involving no change of
ownership of the Corporation) or other securities, cash or other property
(excluding payments made solely for fractional shares).
<PAGE>
K. MISCELLANEOUS.
(i) Except as specifically set forth herein, all notices
or communications provided for or permitted hereunder shall be made in writing
by hand delivery, express overnight courier, registered first class mail, or
telecopier addressed (1) if to the Corporation, to its office at 4615 Post Oak
Place, Suite 111, Houston, Texas 77027, Attention: Chief Financial Officer,
Telecopier: (713) 621-5870, and (2) if to the holder of the Series E Preferred
Stock, to such holder at the address of such holder as listed in the stock
record books of the Corporation or to such other address as the Corporation or
such holder, as the case may be, shall have designated by notice similarly
given. All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five (5) business days
after being deposited in the mail, registered or certified mail, return receipt
requested, postage prepaid, if mailed; when received after being deposited in
the regular mail; the next business day after being deposited with an overnight
courier, if deposited with a nationally recognized, overnight courier service;
when receipt is acknowledged, if by telecopier, so long as followed up on the
same day by overnight courier.
(iii) The Corporation shall pay any and all stock transfer
and documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series E Preferred Stock or shares of Common Stock or
other securities issued on account of Series E Preferred Stock pursuant hereto
or certificates representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax which may be payable in respect of
any transfer involved in the issuance or delivery of shares of Series E
Preferred Stock or Common Stock or other securities in a name other than that in
which the shares of Series E Preferred Stock with respect to which such shares
or other securities are issued or delivered were registered, or in respect of
any payment to any person with respect to any such shares or securities other
than a payment to the registered holder thereof, and shall not be required to
make any such issuance, delivery or payment described in this sentence unless
and until the person otherwise entitled to such issuance, delivery or payment
has paid to the Corporation the amount of any such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid or is not
payable.
(iv) In the event that the holder of shares of Series E
Preferred Stock shall not by written notice designate the address to which the
certificate or certificates representing shares of Common Stock to be issued
upon conversion of such shares should be sent, the Corporation shall be entitled
to send the certificate or certificates representing such shares to the address
of such holder shown on the records of the Corporation or any transfer agent for
the Series E Preferred Stock.
(v) The Corporation may appoint, and from time to time
discharge and change, a transfer agent of the Series E Preferred Stock. Upon any
such appointment or discharge of a transfer agent, the Corporation shall send
notice thereof by first-class mail, postage prepaid, to each holder of record of
Series E Preferred Stock.
(vi) The Corporation shall appoint, and from time to time
may replace, a conversion agent for the Series E Preferred Stock. Upon any such
replacement of the conversion agent, the Corporation shall send notice thereof
by first-class mail, postage prepaid, to each holder of record of Series E
Preferred Stock.
(vii) Any Series E Preferred Stock redeemed, purchased,
converted or otherwise acquired by the Corporation in any manner whatsoever
shall not be reissued as part of such Series E Preferred Stock and shall be
retired promptly after the acquisition thereof. The Corporation contemplates
issuing shares of Series E Preferred Stock pursuant to that certain Applied
Voice Recognition, Inc., d/b/a e-DOCS.net Series E Preferred Stock and Warrant
Purchase Agreement between the Corporation and the investor described therein
dated
<PAGE>
August 12, 1999 (the "Initial Purchase Agreement"), as such Initial Purchase
Agreement shall be amended from time to time. In addition, the Corporation
contemplates issuing shares of Series E Preferred Stock pursuant to one or more
additional purchase agreements (the "Subsequent Purchase Agreements") that will
either be substantially similar to the Initial Purchase Agreement, or if there
are material differences between the Initial Purchase Agreement and the
Subsequent Purchase Agreements, the Initial Purchase Agreement will be amended
to conform in all material respects to the Subsequent Purchase Agreements.
Notwithstanding the foregoing, any obligation of the investor that is a party to
the Initial Purchase Agreement to agree to any such amendment shall be contained
only in the Initial Purchase Agreement. No shares of Series E Preferred Stock
may be issued except pursuant to the Initial Purchase Agreement (including any
amendments thereto) or the Subsequent Purchase Agreements. Upon determination by
the Board of Directors of the Corporation that the Corporation will not sell
additional shares of Series E Preferred Stock pursuant to Subsequent Purchase
Agreements, all unissued shares of such preferred stock, as well as any Series E
Preferred Stock that are at any time redeemed, purchased, converted or otherwise
acquired by the Corporation, shall return to the status of undesignated shares
of preferred stock of the Corporation.
(viii) The Series E Preferred Stock shall be transferable
by the holders, provided that such transfer is made in compliance with the
Purchase Agreement and applicable federal and state securities laws.
(ix) Nothing contained herein shall be construed to
prevent the Board of Directors of the Corporation from issuing one or more
series of preferred stock with dividend and/or liquidation preferences junior to
the Series E Preferred Stock.
IN WITNESS WHEREOF, Applied Voice Recognition, Inc. has caused this
certificate to be signed by Eric Black, its President and Chief Executive
Officer, as of the 18 day of August, 1999.
APPLIED VOICE RECOGNITION, INC., D/B/A
E-DOCS.NET
By: /s/ ERIC BLACK
Eric Black,
President and Chief Executive Officer
Signature Page to
Certificate of Designation, Preferences,
Rights and Limitations of Series E Preferred Stock
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of the 18 day of August, 1999 (the "Effective Date") by and between
APPLIED VOICE RECOGNITION, INC., a Delaware corporation doing business as
e-DOCS.net (the "Company"), and each of the shareholders described on the
signature page hereto (individually, a "Shareholder" and collectively, the
"Shareholders").
R E C I T A L S:
WHEREAS, while there is only one Shareholder that is a party to this
Agreement as of the date hereof, the parties anticipate that this Agreement may
be amended in the future to provided for additional Shareholders and additional
shares of Series E Preferred Stock (as hereafter defined) to be sold in
accordance with the terms of this Agreement;
WHEREAS, the Shareholders are acquiring up to an aggregate of Two
Thousand (2,000) shares of the Company's Series E Preferred Stock, par value
$0.10 per share (such number of shares as are actually issued to the
Shareholders being referred to as the "Series E Preferred Stock") pursuant to
that certain Applied Voice Recognition, Inc., d/b/a e-DOCS.net Series E
Preferred Stock and Warrant Purchase Agreement dated of even date herewith (the
"Purchase Agreement");
WHEREAS, the Series E Preferred Stock is convertible into shares of the
Company's common stock, $0.001 par value per share (the "Common Stock");
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company
has issued in favor of the Shareholders warrants to purchase an aggregate of
400,000 shares of Common Stock of the Company (the "Purchase Agreement
Warrants");
WHEREAS, pursuant to the terms of that certain Convertible Promissory
Note and Warrant Purchase Agreement dated July 20, 1999, the Company has issued
in favor of the Stockholders warrants to purchase a number of shares of Common
Stock of the Company to be determined by formula, which number the parties
hereto agree to be 75,000 shares of Common Stock (the "Convertible Note
Warrants" and, together with the Purchase Agreement Warrants, being referred to
as the "Warrants");
WHEREAS, the Company desires to grant to the Shareholders certain
registration rights relating to the shares of Common Stock issuable upon
conversion of any of the Series E Preferred Stock and upon exercise of any one
or more of the Warrants (the "Shares"), and the Shareholders desire to obtain
such registration rights, subject to the terms and conditions set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS AND REFERENCES. For purposes of this Agreement, in
addition to the definitions set forth above and elsewhere herein, the following
terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities and Exchange
Commission and any successor agency.
(b) The terms "register", "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act (as herein
defined) and the declaration or ordering of effectiveness of such
registration statement or document.
(c) For purposes of this Agreement, the term "Registrable Stock"
shall mean (i) any Shares, (ii) any shares of Common Stock issued to a
Holder, relating to the Shares, by way of a stock split, reorganization,
merger or consolidation; (iii) any Common Stock issued to a Holder,
relating to the Shares, as a dividend on the Shares; and (iv) any shares
of Common Stock that would be Registrable Stock" in a Registration
Rights Agreement entered into between the Company and other purchasers
of Series E Preferred Stock, relating to the registration of Common
Stock issued upon conversion of such Series E Preferred Stock. For
purposes of this Agreement, any Registrable Stock shall cease to be
Registrable Stock when (u) five years have passed since an underwritten
public offering has been completed for the account of the Company, (v) a
registration statement covering such Registrable Stock has been declared
effective and such Registrable Stock has been disposed of pursuant to
such effective registration statement, (w) such Registrable Stock is
sold pursuant to Rule 144 (or any similar provision then in force) under
the 1933 Act, (x) such Registrable Stock is eligible to be sold pursuant
to Rule 144(k) under the 1933 Act, (y) such Registrable Stock has been
otherwise transferred, no stop transfer order affecting such stock is in
effect and the Company has delivered new certificates or other evidences
of ownership for such Registrable Stock not bearing any legend
indicating that such shares have not been registered under the 1933 Act,
or (z) such Registrable Stock is sold by a person in a transaction in
which the rights under the provisions of this Agreement are not
assigned. Nothing contained in this Agreement shall be construed as
requiring a Holder to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(d) The terms "Holder" and "Holders" shall mean a Shareholder or
the Shareholders or any transferee or assignee thereof to whom the
rights under this Agreement are assigned in accordance with Section 10
hereof, PROVIDED that the Holder or Holders or such transferee or
assignee shall then own the Registrable Stock. In addition thereto,
"Holder" and "Holders" shall also refer to a shareholder or any
<PAGE>
transferee or assignee thereof that is a party to any other Registration
Rights Agreement entered into with the Company relating to the
registration of shares of Common Stock following their issuance upon
conversion of Series E Preferred Stock of the Company.
(e) The term "1933 Act" shall mean the Securities Act of 1933, as
amended.
(f) An "affiliate of such Holder" shall mean a person who
controls, is controlled by or is under common control with a Holder, or
the spouse or children (or a trust exclusively for the benefit of the
spouse and/or children) of a Holder, or, in the case of a Holder that is
a partnership, its partners.
(g) The term "Person" shall mean an individual, corporation,
partnership, trust, limited liability company, unincorporated
organization or association or other entity.
(h) The term "Requesting Holder" and "Requesting Holders" shall
mean a Holder or the Holders of in the aggregate at least fifty percent
(50%) of the Registrable Stock.
(i) References in this Agreement to any rules, regulations or
forms promulgated by the Commission shall include rules, regulations and
forms succeeding to the functions thereof, whether or not bearing the
same designation.
2. DEMAND REGISTRATION.
(a) Commencing ninety (90) days following the date hereof, any
Requesting Holders may make a written request to the Company (specifying
that it is being made pursuant to this Section 2) that the Company file
a registration statement under the 1933 Act (or a similar document
pursuant to any other statute then in effect corresponding to the 1933
Act) covering the registration of Registrable Stock. In such event, the
Company shall (x) within five (5) days thereafter notify in writing all
other Holders of Registrable Stock of such request, and (y) use its
reasonable efforts to cause to be registered under the 1933 Act all
Registrable Stock that the Requesting Holders and such other Holders
have, within fifteen (15) days after the Company has given such notice,
requested be registered. Notwithstanding the foregoing, the Company
shall not be obligated to file the above described registration
statement if the aggregate proceeds from the registration would
reasonably be expected to be less than $300,000.
(b) If the Requesting Holders intend to distribute the
Registrable Stock covered by their request by means of an underwritten
offering, they shall so advise the Company as a part of their request
pursuant to Section 2(a) above, and the Company shall include such
information in the written notice referred to in clause (x) of Section
2(a) above. In such event, the Holder's right to include its Registrable
Stock in such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion of such
Holder's Registrable Stock in the underwritten
<PAGE>
offering to the extent provided in this Section 2. All holders proposing
to distribute Registrable Stock through such underwritten offering shall
enter into an underwriting agreement in customary form with the
underwriter or underwriters. Such underwriter or underwriters shall be
selected by a majority in interest of the Requesting Holders and shall
be approved by the Company, which approval shall not be unreasonably
withheld; PROVIDED, that all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the
benefit of such underwriters shall also be made to and for the benefit
of such Holders and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement shall
be conditions precedent to the obligations of such Holders; and PROVIDED
FURTHER, that no holder shall be required to make any representations or
warranties to or agreements with the Company or the underwriters other
than representations, warranties or agreements regarding such Holder,
the Registrable Stock of such Holder and such Holder's intended method
of distribution and any other representation required by law or
reasonably required by the underwriter.
(c) Notwithstanding any other provision of this Section 2 to the
contrary, if the managing underwriter of an underwritten offering of the
Registrable Stock requested to be registered pursuant to this Section 2
advises the Requesting Holders in writing that in its opinion marketing
factors require a limitation of the number of shares to be underwritten,
the Requesting Holders shall so advise all Holders of Registrable Stock
that would otherwise be underwritten pursuant hereto, and the number of
shares of Registrable Stock that may be included in such underwritten
offering shall be allocated among all such Holders, including the
Requesting Holders, in proportion (as nearly as practicable) to the
amount of Registrable Stock requested to be included in such
registration by each Holder at the time of filing the registration
statement; PROVIDED, that in the event of such limitation of the number
of shares of Registrable Stock to be underwritten, such registration
shall not count against the number of demand registrations the
Requesting Holders are permitted to request hereunder. If any Holder of
Registrable Stock disapproves of the terms of the underwriting, such
Holder may elect to withdraw by written notice to the Company, the
managing underwriter and the Requesting Holders. The securities so
withdrawn shall also be withdrawn from registration.
(d) Notwithstanding any provision of this Agreement to the
contrary, the Company shall not be required to effect a registration
pursuant to this Section 2 during the period starting with the
fourteenth (14th) day immediately preceding the date of an anticipated
filing by the Company of, and ending on a date ninety (90) days
following the effective date of, a registration statement pertaining to
an underwritten public offering of securities for the account of the
Company; PROVIDED, that the Company shall actively employ in good faith
all reasonable efforts to cause such registration statement to become
effective; and PROVIDED FURTHER, that the Company's estimate of the date
of filing such registration statement shall be made in good faith.
<PAGE>
(e) Subject to the additional terms contained herein, the
Requesting Holders shall be entitled to an unlimited number of
registrations on Form S-3, but shall only be allowed three demands that
utilize forms other than Form S-3. The Company shall use Form S-3 for
registrations pursuant hereto if such form is available to the Company.
If federal law precludes the use of Form S-3, the Company shall use
whatever form is necessary; however, the Company shall not be obligated
to use such non Form S-3 forms more than a total of three times, unless
increased pursuant to Section 2(c) hereof; PROVIDED, that a registration
requested pursuant to this Section 2 shall not be deemed to have been
effected for purposes of this Section 2(e), unless (i) it has been
declared effective by the Commission, (ii) if it is a shelf
registration, it has remained effective for the period set forth in
Section 3(b), (iii) the offering of Registrable Stock pursuant to such
registration is not subject to any stop order, injunction or other order
or requirement of the Commission (other than any such action prompted by
any act or omission of the Holders), and (iv) no limitation of the
number of shares of Registrable Stock to be underwritten has been
required pursuant to Section 2(c) hereof.
3. OBLIGATIONS OF THE COMPANY. Whenever required under Section 2 to use
its reasonable efforts to effect the registration of any Registrable Stock, the
Company shall, as expeditiously as possible:
(a) prepare and file with the Commission, not later than ninety
(90) days after receipt of a request to file a registration statement
with respect to such Registrable Stock, a registration statement on Form
S-3 if available or, if not, any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and
which form shall be available for the sale of such issue of Registrable
Stock in accordance with the intended method of distribution thereof,
and use its reasonable efforts to cause such registration statement to
become effective as promptly as practicable thereafter; PROVIDED that
before filing a registration statement or prospectus or any amendments
or supplements thereto, the Company will (i) furnish to one (1) counsel
selected by the Requesting Holders copies of all such documents proposed
to be filed, and (ii) notify each such Holder of any stop order issued
or threatened by the Commission and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period of time as would satisfy the holding
period requirements of Rule 144(k) promulgated by the Commission with
respect to the Shares or such shorter period which will terminate when
all Registrable Stock covered by such registration statement has been
sold (but not before the expiration of the forty (40) or ninety (90) day
period referred to in Section 4(3) of the 1933 Act and Rule 174
thereunder, if applicable), and comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
<PAGE>
(c) furnish to each Holder and any underwriter of Registrable
Stock to be included in a registration statement copies of such
registration statement as filed and each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such Holder may reasonably
request in order to facilitate the disposition of the Registrable Stock
owned by such Holder;
(d) use its reasonable efforts to register or qualify such
Registrable Stock under such other securities or blue sky laws of such
jurisdictions as any selling Holder or any underwriter of Registrable
Stock reasonably requests, and do any and all other acts which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in such jurisdictions of the Registrable Stock owned by
such Holder; PROVIDED that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d) hereof, (ii)
subject itself to taxation in any such jurisdiction, or (iii) consent to
general service of process in any such jurisdiction;
(e) use its reasonable efforts to cause the Registrable Stock
covered by such registration statement to be registered with or approved
by such other governmental agencies or other authorities as may be
necessary by virtue of the business and operations of the Company to
enable the selling Holders thereof to consummate the disposition of such
Registrable Stock;
(f) notify each selling Holder of such Registrable Stock and any
underwriter thereof, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act (even if such time is after
the period referred to in Section 3(b)), of the happening of any event
as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances being made not
misleading, and prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances being made not misleading;
(g) make available for inspection by any selling Holder, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"),
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, in connection with such registration statement. Records
or other information which the Company determines, in good faith,
<PAGE>
to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records or other information is necessary to avoid or correct a
misstatement or omission in the registration statement, or (ii) the
release of such Records or other information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction. Each
selling Holder shall, upon learning that disclosure of such Records or
other information is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at the Company's expense,
to undertake appropriate action to prevent disclosure of the Records or
other information deemed confidential;
(h) furnish, at the request of any Requesting Holder, on the date
that such shares of Registrable Stock are delivered to the underwriters
for sale pursuant to such registration or, if such Registrable Stock is
not being sold through underwriters, on the date that the registration
statement with respect to such shares of Registrable Stock becomes
effective, (1) a signed opinion, dated such date, of the legal counsel
representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and if such Registrable Stock is
not being sold through underwriters, then to the Requesting Holders as
to such matters as such underwriters or the Requesting Holders, as the
case may be, may reasonably request and as would be customary in such a
transaction; and (2) a letter dated such date, from the independent
certified public accountants of the Company, addressed to the
underwriters, if any, and if such Registrable Stock is not being sold
through underwriters, then to the Requesting Holders and, if such
accountants refuse to deliver such letter to such Holder, then to the
Company (i) stating that they are independent certified public
accountants within the meaning of the 1933 Act and that, in the opinion
of such accountants, the financial statements and other financial data
of the Company included in the registration statement or the prospectus,
or any amendment or supplement thereto, comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act, and (ii) covering such other financial matters (including
information as to the period ending not more than five (5) business days
prior to the date of such letter) with respect to the registration in
respect of which such letter is being given as the Requesting Holders
may reasonably request and as would be customary in such a transaction;
and
(i) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement
in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the
Registrable Stock to be so included in the registration statement.
The Company may require each selling Holder of Registrable Stock as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Stock as the Company
may from time to time reasonably request in writing.
<PAGE>
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) hereof, such
Holder will forthwith discontinue disposition of Registrable Stock pursuant to
the registration statement covering such Registrable Stock until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3(f) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Stock current at the time of receipt of such notice.
In the event the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
Section 3(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 3(f) hereof to and
including the date when each selling Holder of Registrable Stock covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 3(f) hereof.
4. INCIDENTAL REGISTRATION. Commencing ninety (90) days after the date
hereof, if the Company determines that it shall file a registration statement
under the 1933 Act (other than a registration statement on a Form S-4 or S-8 or
filed in connection with an exchange offer or an offering of securities solely
to the Company's existing stockholders) on any form that would also permit the
registration of the Registrable Stock and such filing is to be on its behalf
and/or on behalf of selling holders of its securities for the general
registration of its common stock to be sold for cash, at each such time the
Company shall promptly give each Holder written notice of such determination
setting forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than thirty (30) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than twenty (20) days after the date of the Company's
notice, the Company shall include the shares in such registration statement and
use its reasonable efforts to cause to be registered under the 1933 Act all of
the Registrable Stock that each such Holder has so requested to be registered.
If, in the written opinion of the managing underwriter or underwriters (or, in
the case of a non-underwritten offering, in the written opinion of the placement
agent, or if there is none, the Company), the total amount of such securities to
be so registered, including such Registrable Stock, will exceed the maximum
amount of the Company's securities which can be marketed (i) at a price
reasonably related to the then current market value of such securities, or (ii)
without otherwise materially and adversely affecting the entire offering, then
the amount of Registrable Stock to be offered for the accounts of Holders shall
be reduced pro rata to the extent necessary to reduce the total amount of
securities to be included in such offering to the recommended amount; PROVIDED,
that if securities are being offered for the account of other Persons as well as
the Company, such reduction shall not represent a greater fraction of the number
of securities intended to be offered by Holders than the fraction of similar
reductions imposed on such other Persons other than the Company over the amount
of securities they intended to offer.
5. HOLDBACK AGREEMENT - RESTRICTIONS ON PUBLIC SALE.
<PAGE>
(a) To the extent not inconsistent with applicable law, each
Holder agrees not to effect any public sale or distribution of the issue
being registered or a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 under the 1933 Act, during the
fourteen (14) days prior to, and during the thirty (30) day period
beginning on, the effective date of any registration statement filed by
the Company in connection with an underwritten public offering in which
the Holder is not participating, if and to the extent requested by the
managing underwriter or underwriters.
(b) The Company agrees (i) not to effect any public sale or
distribution of any securities similar to those being registered, or any
securities convertible into or exchangeable or exercisable for such
securities, during the fourteen (14) days prior to, and during the
ninety (90) day period beginning on, the effective date of any
registration statement in which Holders are participating (except as
part of such registration), if and to the extent requested by the
Holders in the case of a non-underwritten public offering or if and to
the extent requested by the managing underwriter or underwriters in the
case of an underwritten public offering; and (ii) that any agreement
entered into after the date of this Agreement pursuant to which the
Company issues or agrees to issue any securities convertible into or
exchangeable or exercisable for such securities (other than pursuant to
an effective registration statement) shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the periods described in (i)
above, in each case including a sale pursuant to Rule 144 under the 1933
Act.
6. EXPENSES OF REGISTRATION. The Company shall bear all expenses
incurred in connection with a registration pursuant to Section 2 or Section 4 of
this Agreement, excluding underwriters' discounts and commissions, but
including, without limitation, all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance), exchange listing fees or National
Association of Securities Dealers fees, messenger and delivery expenses, all
fees and expenses of complying with securities or blue sky laws, fees and
disbursements of counsel for the Company. The selling Holders shall bear and pay
the underwriting commissions and discounts applicable to the Registrable Stock
offered for their account in connection with any registrations, filings and
qualifications made pursuant to this Agreement and fees of their counsel.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, each selling Holder, its
officers, directors and agents and each Person who controls such Holder
(within the meaning of the 1933 Act) against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged untrue
statement of material fact contained in any registration statement,
prospectus or
<PAGE>
preliminary prospectus or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement therein (in case of a prospectus or preliminary
prospectus, in the light of the circumstances under which they were
made) not misleading. The Company will also indemnify any underwriters
of the Registrable Stock, their officers and directors and each Person
who controls such underwriters (within the meaning of the 1933 Act) to
the same extent as provided above with respect to the indemnification of
the selling Holders.
(b) INDEMNIFICATION BY HOLDERS. In connection with any
registration statement in which a Holder is participating, each such
Holder will furnish to the Company in writing such information with
respect to such Holder as the Company reasonably requests for use in
connection with any such registration statement or prospectus and agrees
to indemnify, to the extent permitted by law, the Company, its directors
and officers and each Person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein (in the
case of a prospectus or preliminary prospectus, in the light of the
circumstances under which they were made) not misleading, to the extent,
but only to the extent, that such untrue statement or omission is
contained in any information with respect to such Holder so furnished in
writing by such Holder. Notwithstanding the foregoing, the liability of
each such Holder under this Section 7(b) shall be limited to an amount
equal to the initial public offering price of the Registrable Stock sold
by such Holder, unless such liability arises out of or is based on
willful misconduct of such Holder.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled
to indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written
notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such Person
will claim indemnification or contribution pursuant to this Agreement
and, unless in the reasonable judgment of such indemnified party, a
conflict of interest may exist between such indemnified party and the
indemnifying party with respect to such claim, permit the indemnifying
party to assume the defense of such claims with counsel reasonably
satisfactory to such indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent
(but such consent will not be unreasonably withheld). Failure by such
Person to provide said notice to the indemnifying party shall itself not
create liability except to the extent of any injury caused thereby. No
indemnifying party will consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. If
the indemnifying party is not entitled to, or elects not to, assume the
defense of a claim, it will not be obligated to pay the fees and
<PAGE>
expenses of more than one (1) counsel with respect to such claim, unless
in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other such
indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of
such additional counsel or counsels.
(d) CONTRIBUTION. If for any reason the indemnity provided for in
this Section 7 is unavailable to, or is insufficient to hold harmless,
an indemnified party, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such
losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties; and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 7(c), any legal or other
fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 7, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in Sections 7(a) and 7(b) without regard to the relative
fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 7.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holders entitled hereunder to approve
such arrangements, and (b) completes and executes all
<PAGE>
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
9. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holder the benefits of Rule 144 promulgated under the 1933 Act
and any other rule or regulation of the Commission that may at any time permit
the Holder to sell securities of the Company to the public without registration,
the Company agrees to: (a) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times after the date
hereof; (b) file with the Commission in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Securities Exchange
Act of 1934, as amended (the "1934 Act"); and (c) furnish to the Holder, so long
as the Holder owns any Registrable Securities, forthwith upon request (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing the Holder of any rule or regulation of the
Commission which permits the selling of any such securities without registration
or pursuant to such form.
10. TRANSFER OF REGISTRATION RIGHTS. The registration rights of any
Holder under this Agreement with respect to any Registrable Stock may only be
transferred to an affiliate of such Holder or to a transferee of at least
$150,000 in Registrable Stock; PROVIDED that such transfer may otherwise be
effected in accordance with applicable securities laws; PROVIDED FURTHER, that
the transferring Holder shall give the Company written notice at or prior to the
time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this Agreement
are being transferred; PROVIDED FURTHER, that such transferee shall agree in
writing, in form and substance satisfactory to the Company, to be bound as a
Holder by the provisions of this Agreement; PROVIDED FURTHER, that all
registration rights shall terminate upon the termination of registration rights
of any Holder under this Agreement as a result of any Registrable Stock being
eligible to be sold pursuant to Rule 144(k) under the 1933 Act; PROVIDED
FURTHER, that no transfer may be made while a registration statement with
respect to the Shares is on file; and PROVIDED FURTHER, that such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by such transferee is restricted under the 1933
Act. Except as set forth in this Section 10, no transfer of Registrable Stock
shall cause such Registrable Stock to lose such status.
11. MERGERS, ETC. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Stock" shall be deemed to be references to
the securities which the Holders would be entitled to receive in exchange for
Registrable Stock under any such merger, consolidation or reorganization;
PROVIDED, HOWEVER, that the provisions of this Section 11 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation
<PAGE>
if each Holder is entitled to receive in exchange for its Registrable Stock
consideration consisting solely of (i) cash, (ii) securities of the acquiring
corporation which may be immediately sold to the public without registration
under the 1933 Act, or (iii) securities of the acquiring corporation which the
acquiring corporation has agreed to register within ninety (90) days of
completion of the transaction for resale to the public pursuant to the 1933 Act.
12. MISCELLANEOUS.
(a) NO INCONSISTENT OR SENIOR AGREEMENTS. The Company will not
hereafter enter into any agreement with respect to its securities which
is inconsistent with the rights granted to the Holders in this
Agreement. The Company will not hereafter enter into any agreement with
respect to its securities which confers upon any party any registration
rights that would pre-empt the registration rights granted pursuant
hereto
(b) REMEDIES. Each Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Agreement.
The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive (to the extent
permitted by law) the defense in any action for specific performance
that a remedy of law would be adequate.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given unless the
Company has obtained the written consent of the Holders of at least a
majority of the Registrable Stock then outstanding affected by such
amendment, modification, supplement, waiver or departure.
(d) SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Nothing in this Agreement, express or
implied, is intended to confer upon any Person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except
as expressly provided in this Agreement.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT
STATE, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
<PAGE>
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) HEADINGS. The headings in this Agreement are used for
convenience of reference only and are not to be considered in construing
or interpreting this Agreement.
(h) NOTICES. Any notice required or permitted under this
Agreement shall be given in writing and shall be delivered in person or
by telecopy or by overnight courier guaranteeing no later than second
business day delivery, directed to (i) the Company at the address set
forth below its signature hereof or (ii) a Holder at the address of the
Administrator set forth below its signature hereof. Any party may change
its address for notice by giving ten (10) days advance written notice to
the other parties. Every notice or other communication hereunder shall
be deemed to have been duly given or served on the date on which
personally delivered, or on the date actually received, if sent by
telecopy or overnight courier service, with receipt acknowledged.
(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions
contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, warranties or undertakings other than
those set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to
such subject matter.
(k) RECITALS. The recitals are hereby incorporated in the
Agreement as if fully set forth herein.
(l) ATTORNEYS FEES. If any action is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs, in addition to any
other relief to which he is or may be entitled. This provision shall be
construed as applicable to the entire Agreement.
(m) ENFORCEABILITY. This Agreement shall remain in full force and
effect notwithstanding any breach or purported breach of, or relating to, the
Purchase Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
COMPANY:
APPLIED VOICE RECOGNITION, INC.
By: /s/ RICHARD A. CARERA
Richard A. Cabrera, Chief Financial Officer
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Telephone: (713) 621-5678
Telecopier: (713) 621-5870
SHAREHOLDERS:
GREENWICH, AG
By: /s/ DANIEL DORNIER
Daniel Dornier, Chief Executive Officer
Neuer Wall 32
20354 Hamburg, Germany
Telephone: (203) 552-5214
Telecopier: (203) 552-5213
Signature Page
To
Registration Rights Agreement
EXHIBIT 4.2
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR THE
SECURITIES LAWS OF ANY STATE; THEREFORE, THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE
OR TRANSFER.
WARRANT TO PURCHASE COMMON STOCK
OF
APPLIED VOICE RECOGNITION, INC., D/B/A E-DOCS.NET
VOID AFTER AUGUST 31, 2003
This certifies that GREENWICH, AG ("Greenwich"), is entitled to
purchase four hundred thousand (400,000) shares (the "Shares") of fully paid and
nonassessable shares of Common Stock, $0.001 par value (the "Common Stock"), of
Applied Voice Recognition, Inc., a Delaware corporation doing business as
e-DOCS.net (the "Company"), at a price equal to $1.25 per share. Shares may be
purchased at any time, in whole or in part, until the expiration of this
Warrant. This Warrant is issued pursuant to that certain Applied Voice
Recognition, Inc., d/b/a e-DOCS.net Series E Preferred Stock and Warrant
Purchase Agreement dated of even date herewith (the "Purchase Agreement"). This
Warrant and the Common Stock issuable upon exercise of this Warrant is subject
to the terms of a Registration Rights Agreement dated August 10, 1999 between
Greenwich and the Company which agreement provides certain piggyback and demand
registration rights in favor of Greenwich.
The purchase price per share of Common Stock from time to time in
effect under this Warrant, and the number and character of shares covered
hereby, shall be subject to adjustments from time to time in certain instances
as follows, and the term "Exercise Price" shall mean the price per share
originally set forth in this Warrant or any price resulting from adjustments
pursuant to the terms hereof. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Stock". The term "Holder" shall refer to Greenwich or any person
or entity holding this Warrant in accordance with the terms hereof.
(a) EXERCISE OF WARRANT.
(1) Subject to and in accordance with the provisions hereof, this
Warrant may be exercised in whole or in part after the date appearing
above the signature of the Company below (the "Effective Date"), but not
later than 5:00 p.m., Houston time, on
<PAGE>
August 31, 2003; or if such day is a day on which United States
government offices are closed, then on the next succeeding day which
shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed and accompanied by payment of
the Exercise Price for the number of shares specified in such form,
together with all applicable federal and state taxes. If this Warrant
should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant at
the office or agency of the Company, in proper form for exercise and
pursuant to compliance herewith, together with payment of the Exercise
Price, the Holder shall be deemed to be the holder of record, for all
purposes, of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then
be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. Upon receipt of the
required deliveries, the Company shall, as promptly as practicable, and
in any event within ten days thereafter, cause to be issued and
delivered to the Holder hereof or the transferee designated in the
Purchase Form a certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise
registered in the name of the Holder hereof, or the name of the
transferee so designated, as the case may be.
(2) In addition to the method of payment set forth in paragraph
(1) above and in lieu of any cash payment required thereunder, the
Holder shall have the right at any time and from time to time to
exercise this Warrant in full or in part by surrendering this Warrant in
the manner specified in paragraph (1) above in exchange for the number
of shares of Common Stock equal to the product of (x) the number of
shares to which this Warrant is being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as herein defined)
of the Common Stock less the Exercise Price (as herein defined) and the
denominator of which is such Market Price. Solely for the purposes of
this paragraph (2), Market Price shall be calculated either (i) on the
date on which the Purchase Form attached hereto is deemed to have been
sent to the Company pursuant to paragraph (1) hereof ("Notice Date") or
(ii) as the average of the Market Price for each of the fifteen trading
days preceding the Notice Date, whichever of (i) or (ii) is greater.
(b) NO IMPAIRMENT. The Company hereby agrees that (i) at all times there
shall be reserved for issuance and delivery upon exercise of this Warrant such
number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of this Warrant, and (ii) it will take all action as may
be necessary in order that all shares of stock as may be issued pursuant to this
Warrant shall, upon issuance, be duly and validly issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, after
payment of the Exercise Price for such fractional share by the
<PAGE>
Holder, the Company shall round the number of shares issued upon the exercise of
this Warrant to the next highest full share.
(d) ASSIGNMENT OF WARRANT OR WARRANT STOCK OR LOSS OF WARRANT.
(1) This Warrant may not be sold, transferred, assigned or
hypothecated at any time after its execution and delivery, except upon
compliance with the requirements of this Warrant and any applicable
state or federal securities laws. Shares of Common Stock issued pursuant
to this Warrant shall be subject to the same holding period as shares of
Common Stock issued upon conversion of the Series E Preferred Stock of
the Company, which holding period is described in the Purchase
Agreement.
(2) Any sale, assignment, transfer or hypothecation of this
Warrant shall be made by surrender of this Warrant to the Company or at
the office of its stock transfer agent, if any, with the Assignment Form
annexed hereto duly executed and accompanied with funds sufficient to
pay any transfer tax; whereupon, the Company shall, after first
receiving such evidence as the Company may reasonably require as to
compliance with this Warrant, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled.
(3) The term "Warrant" as used herein includes any Warrant issued
in substitution for or replacement of this Warrant. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of
this Warrant, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will at its expense execute and deliver a new
Warrant of like tenor and date. When authorizing the execution and
delivery of a new Warrant to replace a Warrant lost, stolen or
destroyed, the Board of Directors of the Company may, in its sole
discretion and as a condition precedent thereto, require the Holder to
deliver an affidavit in a form satisfactory to the Board of Directors of
the Company and to indemnify the Company against any claim that may be
made against the Company with respect to such lost, stolen or destroyed
Warrant.
(e) ANTI-DILUTION AND ADJUSTMENT PROVISIONS. The purchase price per
share of Common Stock from time to time in effect under this Warrant, and the
number and character of shares covered hereby, shall be subject to adjustments
from time to time in certain instances as follows, and the term "Exercise Price"
shall mean the price per share originally set forth in this Warrant or any price
resulting from adjustments pursuant to the terms hereof.
(1) In case the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares or shall issue in exchange
for its outstanding shares of Common Stock a greater number of shares of
Common Stock, then in each such case from and after the record date for
such subdivision or exchange, the number of shares of Common Stock
covered by this Warrant shall be increased in proportion to such
increase in the number of outstanding shares of Common Stock and the
Exercise Price then in effect shall be correspondingly decreased; and in
the case the Company shall reduce
<PAGE>
the number of shares of its Common Stock by a combination of shares or
shall issue in exchange for its outstanding shares of Common Stock a
lesser number of shares of Common Stock, then in each such case from and
after the record date for such combination or exchange, the number of
shares of Common Stock covered by this Warrant shall be decreased in
proportion to such reduction in the number of outstanding shares of
Common Stock, and the then prevailing Exercise Price shall be
correspondingly increased.
(2) In case the Company shall declare and pay a dividend upon its
Common Stock payable in Common Stock, then in each such case from and
after the record date for determining the stockholders entitled to
receive such dividend, the number of shares of Common Stock covered by
this Warrant shall be increased in proportion to the increase in the
number of outstanding shares of Common Stock through such stock
dividend, and the then prevailing Exercise Price shall be
correspondingly decreased.
(3) In case of any reclassification or change of outstanding
shares of Common Stock (other than as a result of a subdivision,
combination or stock dividend) or in case of the consolidation or merger
of the Company with or into any other corporation (other than a merger
in which the Company is the continuing corporation and which does not
result in any reclassification or change in its outstanding shares of
Common Stock), or in case of any sale by the Company of all or
substantially all of its assets to another corporation, the Holder shall
have the right thereafter to receive upon exercise of this Warrant the
amount and kind of shares of capital stock and other securities and
property entitled to be received upon such reclassification, change,
consolidation, merger or sale by a holder of the number of shares of
Common Stock of the Company covered by this Warrant at the then
prevailing Exercise Price, subject to subsequent adjustments as provided
herein.
(f) NOTICES TO HOLDER. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least ten days prior to the date
specified in (x) and at least thirty days prior to the date specified in (y)
below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and at least twenty days
prior notice as to the date, if any is to be fixed, as of which the holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation, or
winding up.
<PAGE>
(g) TRANSFER TO COMPLY WITH THE SECURITIES ACT.
(1) This Warrant or the Warrant Stock or any other security
issued or issuable upon exercise of this Warrant may not be offered or
sold except in conformity with the Securities Act, and then only against
receipt of an agreement of such person to whom such offer of sale is
made to comply with the provisions of this Section (g) with respect to
any resale or other disposition of such securities.
(2) The Company may cause the legends set forth at the top of the
first page hereof to be set forth on each Warrant and the following
legends to be set forth on each certificate representing Warrant Stock,
unless counsel for the Company is of the opinion as to any such
certificate that such legend is unnecessary:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON DELIVERY TO THE
CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR
TRANSFER.
(h) APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
(i) NOTICE. Any notices or certificates by the Company to the Holder and
by the Holder to the Company shall be deemed delivered if in writing and
delivered personally or five (5) days after being sent by certified mail or
registered mail, return receipt requested, to the Holder. For purposes hereof,
the address of the Holder shall be Neuer Wall 32, 20354 Hamburg, Germany,
Attention: Daniel Dornier, and the address of the Company shall be 4615 Post Oak
Place, Suite 111, Houston, Texas 77027, Attention: Chief Financial Officer;
provided, however, either address may be changed by notice given in accordance
herewith.
(j) NONWAIVER. No course of dealing or any delay or failure to exercise
any right, power or remedy hereunder on the part of the Holder hereof shall
operate as a waiver of or otherwise prejudice such Holder's rights, powers or
remedies.
(k) HOLDER NOT A STOCKHOLDER. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder hereof shall not, by virtue of its ownership
of this Warrant, except as specifically provided herein, be entitled to any of
the rights of a stockholder of the Company including, without limitation, the
right as a stockholder to (a) vote on or consent to any proposed action of the
Company or (b) receive notice of or attend any meetings of stockholders of the
Company or notice of any other proceedings of the Company.
<PAGE>
(l) SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the Holder hereof and the Holder of the shares of Common Stock
issued upon the exercise hereof, and shall be enforceable by any such Holder.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed effective as of August 18, 1999.
APPLIED VOICE RECOGNITION, INC.,
By: /s/ RICHARD A. CABRERA
RICHARD A. CABRERA, CHIEF
EXHIBIT 10.1
FINANCIAL OFFICERAPPLIED VOICE RECOGNITION, INC., D/B/A E-DOCS.NET
AND GREENWICH, AG
SERIES E PREFERRED STOCK
AND WARRANT
PURCHASE AGREEMENT
------------------
AUGUST 18, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
1. Purchase and Sale of Stock............................................ 1
1.1 Sale and Issuance of Series E Preferred Stock and Common
Stock Purchase Warrants......................................... 1
1.2 Closing........................................................... 1
2. Representations and Warranties of the Company......................... 2
2.1 Organization; Good Standing; Qualification........................ 2
2.2 Authorization..................................................... 2
2.3 Valid Issuance of Subject Stock................................... 2
2.4 Compliance with Securities Exchange Act of 1934................... 3
2.5 Governmental Consents............................................. 3
2.6 Capitalization and Voting Rights.................................. 3
2.7 Subsidiaries...................................................... 4
2.8 Contracts and Other Commitments................................... 4
2.9 Related-Party Transactions........................................ 4
2.10 Registration Rights............................................... 5
2.11 Permits........................................................... 5
2.12 Compliance with Other Instruments................................. 5
2.13 Litigation........................................................ 5
2.14 Disclosure........................................................ 6
2.15 Offering.......................................................... 6
2.16 Title to Property and Assets; Leases.............................. 6
2.17 Financial Statements.............................................. 6
2.18 Changes........................................................... 7
2.19 Patents and Trademarks............................................ 8
2.20 Employees; Employee Compensation.................................. 9
2.21 Proprietary Information and Inventions Agreements................. 9
2.22 Tax Returns, Payments, and Elections.............................. 9
2.23 Insurance......................................................... 10
2.24 Environmental and Safety Laws..................................... 10
2.25 Minute Books...................................................... 10
2.26 Real Property Holding Corporation................................. 10
<PAGE>
2.27 Payments.......................................................... 10
2.28 No Brokers or Finders............................................. 10
3. Representations and Warranties of the Investors....................... 10
3.1 Authorization..................................................... 10
3.2 Purchase Entirely for Own Account................................. 11
3.3 Reliance Upon Investor's Representations.......................... 11
3.4 Receipt of Information............................................ 11
3.5 Investment Experience............................................. 11
3.6 Accredited Investor............................................... 12
3.7 Restricted Securities............................................. 13
3.8 Legends........................................................... 13
3.9 Public Sale....................................................... 14
3.10 Foreign Investor.................................................. 14
4. Conditions of Investor's Obligations at Closing....................... 14
4.1 Representations and Warranties.................................... 14
4.2 Performance....................................................... 14
4.3 Compliance Certificate............................................ 14
4.4 Qualifications.................................................... 14
4.5 Proceedings and Documents......................................... 14
4.6 Bylaws............................................................ 15
4.7 Board of Directors................................................ 15
4.8 Opinion of Company Counsel........................................ 15
4.9 Registration Rights Agreement..................................... 15
5. Conditions of the Company's Obligations at Closing.................... 15
5.1 Representations and Warranties.................................... 15
5.2 Qualifications.................................................... 15
<PAGE>
6. Convenants............................................................ 15
6.1 Reservation of Shares............................................. 15
6.2 Delivery of Financial Statements.................................. 15
6.3 Inspection........................................................ 16
6.4 Election of Daniel Dornier as a Director.......................... 16
7. Miscellaneous......................................................... 17
7.1 Entire Agreement.................................................. 17
7.2 Survival of Warranties............................................ 17
7.3 Successors and Assigns............................................ 17
7.4 Governing Law..................................................... 17
7.5 Counterparts...................................................... 17
7.6 Titles and Subtitles.............................................. 17
7.7 Notices........................................................... 17
7.8 Finder's Fees..................................................... 17
7.9 Expenses.......................................................... 18
7.10 Attorneys'Fees.................................................... 18
7.11 Amendments and Waivers............................................ 18
7.12 Severability...................................................... 19
<PAGE>
SCHEDULE A List of Investors and Shares to be Purchased... Schedule A
SCHEDULE B List of Exceptions............................. Schedule B
EXHIBIT "A" Certificate of Designation of Series E
Preferred Stock.................................... A-1
EXHIBIT "B" Form of Warrant...................................... B-1
EXHIBIT "C" Form of Legal Opinion................................ C-1
EXHIBIT "D" Registration Rights Agreement........................ D-1
<PAGE>
APPLIED VOICE RECOGNITION, INC., D/B/A E-DOCS.NET
AND GREENWICH, AG
SERIES E PREFERRED STOCK
AND WARRANT
PURCHASE AGREEMENT
THIS SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is made as of the 18 day of August, 1999 (the "Effective Date"),
by and between APPLIED VOICE RECOGNITION, INC., a Delaware corporation doing
business as e-DOCS.net (the "Company"), and each of the investor(s) described on
the signature page attached hereto (referred to herein from time to time
collectively, whether one or more, as the "Investors" and separately as each
"Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES E PREFERRED STOCK AND COMMON STOCK
PURCHASE WARRANTS.
(i) The Company shall adopt and file with the Secretary of
State of the State of Delaware on or before the Closing (as defined below) a
Certificate of Designation of the Rights, Preferences and Limitations of Series
E Preferred Stock in the form attached hereto as EXHIBIT "A" (the "Certificate
of Designation").
(ii) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the Closing and
the Company agrees to sell and issue to each Investor, at the Closing (a) that
number of shares of the Company's Series E Preferred Stock set forth opposite
each Investor's name on SCHEDULE A attached hereto at a price of $1,000.00 per
share, and (b) a Warrant in the form of EXHIBIT "B" (individually a "Warrant"
and collectively, the "Warrants") to purchase that number of shares of the
Company's Common Stock (as defined in Section 2.6(ii)) set forth opposite each
Investor's name on SCHEDULE A for no additional consideration.
1.2 CLOSING. The purchase and sale of (a) an aggregate of 2,000 shares
of the Company's Series E Preferred Stock, (the "Subject Stock"), and (b)
Warrants for the purchase of an aggregate of 400,000 shares of the Company's
Common Stock, shall take place at the offices of Boyar, Simon & Miller, P.C.,
Houston, Texas, at 10:00 a.m., on August 16, 1999, or at such other time and
place as the Company and Investors shall mutually agree, either orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
the Company shall deliver to each Investor (i) a Warrant in the form attached
hereto as EXHIBIT "B" to purchase such number of shares of the Company's Common
Stock set forth opposite each Investor's name on SCHEDULE A, and (ii) a
certificate representing the shares of Subject Stock that such Investor is
purchasing against payment of the purchase price therefor by wire transfer to
the bank account designated by the Company or such other form of payment as
shall be mutually agreed upon by Investor and the Company. Notwithstanding the
foregoing, the
<PAGE>
Company acknowledges that $509,000 of the purchase price required hereby from
Greenwich, AG ("Greenwich") shall be paid through the conversion of that certain
Convertible Promissory Note of the Company to Greenwich, dated July 20, 1999, in
the original principal amount of $500,000.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions attached hereto as SCHEDULE B, a copy of which has been furnished
to each Investor, specifically identifying the relevant subparagraph(s) hereof,
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this
Agreement, the Registration Rights Agreement (in the form attached hereto as
EXHIBIT "D") and any other agreement to which the Company is a party and the
execution and delivery of which is contemplated hereby (which other agreements
and the Registration Rights Agreement are referred to herein collectively as the
"Ancillary Agreements"), to issue and sell the Subject Stock and the Common
Stock issuable upon the conversion thereof, to issue the Warrants, and to carry
out the provisions of this Agreement, the Warrants, the Certificate of
Designation and any Ancillary Agreement. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on its business,
properties, prospects or financial condition.
2.2 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors, and stockholders necessary for the authorization, execution
and delivery of this Agreement and any Ancillary Agreement, the performance of
all obligations of the Company hereunder and thereunder at the Closing and the
authorization, issuance (or reservation for issuance), sale, and delivery of the
Subject Stock being sold hereunder, the Common Stock issuable upon conversion
thereof, and the Warrants has been taken or will be taken prior to the Closing,
and this Agreement, the issuance and delivery of the Warrants and the execution
and delivery of any Ancillary Agreement constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
2.3 VALID ISSUANCE OF SUBJECT STOCK. The Subject Stock that is being
purchased by the Investors hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws and will not
subject the holders thereof to personal liability by reason of being such
holder. The Common Stock issuable upon conversion of the Subject Stock purchased
under this Agreement (based on an initial conversion
<PAGE>
price of $1.00 per share) as well as the Common Stock issuable upon exercise of
the Warrants, has been duly and validly reserved for issuance and, upon issuance
in accordance with the terms of the Certificate of Designation or the Warrants,
as applicable, will be duly and validly issued, fully paid, and nonassessable
and will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities laws, and
will not subject the holders thereof to personal liability by reason of being
such holders.
2.4 COMPLIANCE WITH SECURITIES EXCHANGE ACT OF 1934. The Company is in
full compliance with all reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Company's Common Stock is
quoted on the Nasdaq Over-the-Counter Bulletin Board (trading symbol "EDOC").
2.5 GOVERNMENTAL CONSENTS. No consent, approval, qualification, order
or authorization of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection with the
Company's valid execution, delivery, or performance of this Agreement, the
offer, sale or issuance of the Subject Stock by the Company or the issuance of
Common Stock upon conversion of the Subject Stock, except (i) the filing of the
Certificate of Designation with the Secretary of State of the State of Delaware,
and (ii) such filings as have been made prior to the Closing, except that any
notices of sale required to be filed with the Securities and Exchange Commission
under Regulation D of the Securities Act of 1933, as amended (the "Securities
Act"), or such post-closing filings as may be required under applicable state
securities laws, which will be timely filed within the applicable periods
therefor.
2.6 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists, or will consist prior to the Closing, of:
(i) PREFERRED STOCK. 2,000,000 shares of Preferred Stock, par value
$0.10 (the "Preferred Stock"), 312,500 of which shares have been designated
Series A Preferred Stock, of which 186,500 are issued and outstanding, 3,000 of
which have been designated Series B Preferred Stock of which 1,817 are issued
and outstanding, 231,788 of which have been designated Series C Preferred Stock
of which 153,538 are issued and outstanding, 5,000 of which have been designated
Series D Preferred Stock of which 5,000 are issued and outstanding, 2,000 of
which have been designated Series 1 Preferred Stock of which none are issued and
outstanding, and 250,000 of which have been designated Series 2 Preferred Stock
of which none are issued and outstanding, 5,000 of which have been designated
Series E Preferred Stock, up to all of which may be sold pursuant to this
Agreement or in a subsequent sale that is substantially along the terms
contained in this Agreement, as this Agreement is amended from time to time. The
rights, privileges and preferences of the Series E Preferred Stock will be as
stated in the Certificate of Designation.
(ii) COMMON STOCK. 50,000,000 shares of common stock ("Common
Stock"), par value $.001, of which 16,555,340 shares are issued and outstanding.
(iii) The outstanding shares of Series A, B, C, D, E, 1 and 2
Preferred Stock and Common Stock have been issued in accordance with the
registration or qualification
<PAGE>
provisions of the Securities Act and any relevant state securities laws or
pursuant to valid exemptions therefrom.
(iv) Except for (A) the conversion privileges of the Series A, B, C,
D, E, 1 and 2 Preferred Stock, (B) currently outstanding options to purchase
2,573,052 shares of Common Stock granted to employees pursuant to the Company's
1997 Incentive Plan (the "Option Plan"), (C) additional warrants and options to
purchase an aggregate of 6,682,644 shares of Common Stock, (D) shares issuable
upon exercise of the Warrants issued pursuant to this Agreement, and (E) options
to purchase 1,500,000 shares of Common Stock contractually committed to Eric
Black but not officially granted, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. In addition to the aforementioned options, the
Company has reserved an additional 426,948 shares of its Common Stock for
purchase upon exercise of options to be granted in the future under the Option
Plan. The Company is not a party or subject to any agreement or understanding,
and, to the best of the Company's knowledge, there is no agreement or
understanding between any persons that affects or relates to the voting or
giving of written consents with respect to any security or the voting by a
director of the Company.
2.7 SUBSIDIARIES. Except as for the entities set forth on the Schedule
of Exceptions, the Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity. The
Company is not a participant in any joint venture, partnership, or similar
arrangement.
2.8 CONTRACTS AND OTHER COMMITMENTS. The Company does not have any
contract, agreement, lease, commitment or proposed transaction, written or oral,
absolute or contingent, other than (i) contracts for the purchase of supplies
and services that were entered into in the ordinary course of business and that
do not involve more than $100,000, and do not extend for more than one (1) year
beyond the date hereof, (ii) sales contracts entered into in the ordinary course
of business, and (iii) contracts terminable at will by the Company on no more
than thirty (30) days notice without cost or liability to the Company and that
do not involve any employment or consulting arrangement and are not material to
the conduct of the Company's business. For the purpose of this section,
employment and consulting contracts and contracts with labor unions, and license
agreements and any other agreements relating to the acquisition or disposition
of the Company's technology, shall not be considered to be contracts entered
into in the ordinary course of business.
2.9 RELATED-PARTY TRANSACTIONS. No employee, officer, or director of
the Company or member of his or her immediate family thereof is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and members
of their immediate families may own stock in publicly traded companies that may
compete with the
<PAGE>
Company. To the best of the Company's knowledge, no officer or director or any
member of their immediate families is, directly or indirectly, interested in any
material contract with the Company.
2.10 REGISTRATION RIGHTS. Except as set forth on the Schedule of
Exceptions, the Company is not obligated to register under the Securities Act
any of its presently outstanding securities or any of its securities that may
subsequently be issued.
2.11 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default in any material respect of any provision of its Certificate of
Incorporation as amended, or Bylaws or in any material respect of any provision
of any mortgage, indenture, agreement, instrument or contract to which it is a
party or by which it is bound or, to the best of its knowledge, of any federal
or state judgment, order, writ, decree, statute, rule or regulation applicable
to the Company. The execution, delivery and performance by the Company of this
Agreement, any Ancillary Agreement, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
material conflict with or constitute, with or without the passage of time or
giving of notice, either a material default under any such provision or an event
that results in the creation of any material lien, charge or encumbrance upon
any assets of the Company or the suspension, revocation, impairment, forfeiture,
or nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations, or any of its assets or
properties.
2.13 LITIGATION. There is no action, suit, proceeding or investigation
pending or to the knowledge of the Company currently threatened against the
Company that questions the validity of this Agreement or any Ancillary Agreement
or the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
business properties, prospects or financial condition of the Company, or in any
material change in the current equity ownership of the Company. The foregoing
includes, without limitation, any action, suit, proceeding, or investigation
pending or currently threatened involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers, or
negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party to, or to the best
of its knowledge, named in any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit or
proceeding by the Company currently pending or that the Company currently
intends to initiate.
<PAGE>
2.14 DISCLOSURE. The Company has provided each Investor with all the
information reasonably available to it without undue expense that such Investor
has requested for deciding whether to purchase the Subject Stock and all
information which the Company believes is reasonably necessary to enable such
Investor to make such decision. To the best of the Company's knowledge after
reasonable investigation, neither this Agreement nor any other written
statements or certificates made or delivered in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading.
2.15 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Subject Stock as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act, and neither the Company nor
any authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
2.16 TITLE TO PROPERTY AND ASSETS; LEASES. Except (a) as reflected in
the Financial Statements (defined in Section 2.17), (b) for liens for current
taxes not yet delinquent, (c) for liens imposed by law and incurred in the
ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (d) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, or
(e) for minor defects in title, none of which, individually or in the aggregate
materially interferes with the use of such property, the Company owns its
property and assets free and clear of all mortgages, liens, claims and
encumbrances. With respect to the property and assets it leases, the Company is
in compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances, subject to clauses
(a)-(e) above.
2.17 FINANCIAL STATEMENTS. The Company has delivered to each Investor
its audited financial statements (balance sheet and profit and loss statement,
statement of stockholders' equity and statement of changes in financial position
including notes thereto) at December 31, 1998 and for the fiscal year then ended
and its unaudited financial statements (balance sheet and profit and loss
statement including notes thereto) as at and for the six (6) month period ended
June 30, 1999 (the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated and with each other, except
that unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject in the case of unaudited
Financial Statements to normal year-end audit adjustments. Except as set forth
in the Financial Statements, the Company has no material liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to June 30, 1999 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other
<PAGE>
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.18 CHANGES. To the best of the Company's knowledge, since June 30,
1999, there has not been:
(i) Any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse.
(ii) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(iii) Any waiver or compromise by the Company of a valuable right or
of a material debt owed to it;
(iv) Any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the business, properties, prospects or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted);
(v) Any material change to a material contract or arrangement by
which the Company or any of its assets is bound or subject;
(vi) Any material change in any compensation arrangement or
agreement with any employee, officer, director, or stockholder;
(vii) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(viii) Any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(ix) Receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(x) Any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
<PAGE>
(xi) Any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(xii) Any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
(xiii) To the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted); or
(xiv) Any agreement or commitment by the Company to do any of the
things described in this Section 2.18.
2.19 PATENTS AND TRADEMARKS. To the best of its knowledge (but without
having conducted any special investigation or patent search) the Company owns or
possesses sufficient legal rights to all patents, trademarks, servicemarks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted. The Company has not received notice that any of its
intellectual property conflicts with or infringes on the rights of others. The
Schedule of Exceptions contains a complete list of patents and pending patent
applications of the Company. Except for agreements with its own employees or
consultants, substantially in the form referenced in Section 2.20 below, there
are no outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights, trade secrets or other proprietary rights of any
other person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such employees is now obligated. The Company does not believe it is or will
be necessary to use any inventions of any of its employees (or persons it
currently intends to hire) made prior to their employment by the Company.
<PAGE>
2.20 EMPLOYEES; EMPLOYEE COMPENSATION. To the best of the knowledge of
the Company, there is no strike, or labor dispute or union organization
activities pending or threatened between the Company and its employees. None of
the Company's employees belongs to any union or collective bargaining unit. To
the best of its knowledge, the Company has complied in all material respects
with all applicable state and federal equal employment opportunity and other
laws related to employment. To the best of the Company's knowledge, no employee
of the Company is or will be in violation of any judgment, decree or order, or
any term of any employment contract, patent disclosure agreement or other
contract or agreement relating to the relationship of any such employee with the
Company or any other party because of the nature of the business conducted or to
be conducted by the Company or to the utilization by the employee of his best
efforts with respect to such business. Except for those agreements listed on the
Schedule of Exceptions, the Company is not party to or bound by any currently
effective employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement, or other employee
compensation agreement. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Except for those employees
listed on the Schedule of Exceptions with whom the Company has entered into
written employment agreements and subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
2.21 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each managerial
and technical employee and officer of the Company has executed an agreement with
the Company with respect to proprietary information and inventions substantially
in the form or forms that have been delivered to special counsel for the
Investors.
2.22 TAX RETURNS, PAYMENTS, AND ELECTIONS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company as shown in the Financial Statements is adequate for taxes
due or accrued as of the date thereof. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S
corporation or a collapsible corporation pursuant to Section 341(f) of Section
1362(a) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to methods of accounting, depreciation
or amortization) which would have a material effect on the business, properties,
prospects or financial condition of the Company. The Company has never had any
tax deficiency proposed or assessed against it and has not executed any waiver
of any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial Statements,
the Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. The Company has in all material respects
withheld or collected from each payment made to each of its employees, the
<PAGE>
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositaries.
2.23 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed. The Company has in full force and effect term life insurance,
payable to the Company, on the life of Timothy J. Connolly in the amount of
$1,000,000. The Company has in full force and effect products liability
insurance in amounts customary for companies similarly situated.
2.24 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
2.25 MINUTE BOOKS. The minute books of the Company contain minutes of
all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the time of
incorporation and reflect all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.26 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
2.27 PAYMENTS. Neither the Company nor any employee or agent of the
Company has made any payment of funds of the Company or received or retained any
funds in violation of any law, including but not limited to the Foreign Corrupt
Practices Act.
2.28 NO BROKERS OR FINDERS. No individual or entity has or will have,
as a result of the transactions contemplated by this Agreement or the Ancillary
Agreements, any right, interest or valid claim against or upon the Company for
any commission, fee or other compensation as a finder or broker because of any
act or omission by the Company or any agent of the Company. The Company agrees
to indemnify and hold Greenwich harmless against any such commissions, fees or
other compensation payable by the Company in connection with the transactions
contemplated under this Agreement or the Ancillary Agreements.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor hereby
represents and warrants to the Company that:
3.1 AUTHORIZATION. Investor has full power and authority to enter into
this Agreement and that this Agreement constitutes a valid and legally binding
obligation of Investor.
<PAGE>
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the
Investor in reliance upon Investor's representation to the Company, which by
such Investor's execution of this Agreement such Investor hereby confirms, that
the Subject Stock and the Warrants to be purchased by such Investor and the
Common Stock issuable upon conversion or exercise thereof, respectively,
(collectively, the "Securities") will be acquired for investment for Investor's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, Investor further represents that Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities.
3.3 RELIANCE UPON INVESTOR'S REPRESENTATIONS. Investor understands that
the Subject Stock and the Warrants are not, and the Common Stock acquired on
conversion or exercise thereof, respectively, at the time of issuance may not
be, registered under the Securities Act on the ground that the sale provided for
in this Agreement and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
the Company's reliance on such exemption is predicated on the Investor's
representations set forth herein. Investor realizes that the basis for the
exemption may not be present if, notwithstanding such representations, Investor
has in mind merely acquiring shares of the Subject Stock or the Warrant with a
present intention to sell those securities in the near future.
3.4 RECEIPT OF INFORMATION. Investor believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Subject Stock. Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Subject Stock, the Warrant and the
business, properties, prospects and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it or to which
it had access. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of Investor to rely thereon.
3.5 INVESTMENT EXPERIENCE. Investor represents that Investor is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Subject Stock and the Warrant. Investor also
represents Investor has not been organized for the sole purpose of acquiring the
Subject Stock or the Warrant.
<PAGE>
3.6 ACCREDITED INVESTOR.
(i) The term "Accredited Investor" as used herein refers to a person
or entity who:
(A) Is a director or executive officer of the Company;
(B) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934; insurance company as
defined in Section 2(13) of the Securities Act; investment company
registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Securities Act;
Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; Employee Benefit Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined
in Section 3(21) of such act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000 or, if
a self-directed plan, with investment decisions made solely by persons
that are accredited investors;
(C) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(D) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000;
(E) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of such person's purchase
exceeds $1,000,000;
(F) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;
(G) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a person who has such knowledge and experience in
financial and business matters that such person is capable of evaluating
the merits and risks of the prospective investment; or
<PAGE>
(H) Any entity in which all of the equity owners are Accredited
Investors.
As used in this Section 3.6(i), the term "net worth" means the
excess of total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual should be
valued at fair market value, including the cost of improvements, net of current
encumbrances. As used in this Section 3.6(i), "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, the undersigned should consider whether it should add any or all of
the following items to its adjusted gross income for income tax purposes in
order to reflect more accurately its actual economic income: any amounts
attributable to tax-exempt income received, losses claimed as a limited partner
in any limited partnership, deductions claimed for depletion, contributions to
an IRA or Keogh retirement plan, and alimony payments.
(ii) Investor as to itself severally and not jointly further
represents to the Company that Investor is an Accredited Investor.
3.7 RESTRICTED SECURITIES. Investor understands that the Subject Stock
and the Warrant (and any Common Stock issued on conversion or exercise thereof,
respectively) may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Subject Stock and/or
the Warrant (or any Common Stock issued on conversion or exercise thereof,
respectively) or an available exemption from registration under the Securities
Act, the Subject Stock and the Warrant (and any Common Stock issued upon
conversion or exercise thereof, respectively) must be held indefinitely. In
particular, Investor is aware that the Subject Stock (and any Common Stock
issued on conversion thereof) may not be sold pursuant to Rule 144 promulgated
under the Securities Act unless all of the conditions of that Rule are met.
Among the conditions for use of Rule 144 is the availability of current
information to the public about the Company.
3.8 LEGENDS. To the extent applicable, each certificate or other
document evidencing any of the Subject Stock or the Warrants or any Common Stock
issued upon conversion or exercise thereof, respectively, shall be endorsed with
the legends set forth below, and each Investor covenants that, except to the
extent such restrictions are waived by the Company, such Investor shall not
transfer the shares represented by any such certificate without complying with
the restrictions on transfer described in the legends endorsed on such
certificate:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH
RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF
<PAGE>
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
3.9 PUBLIC SALE. Each Investor agrees not to make, without the prior
written consent of the Company, any sale, offer for sale, pledge, hypothecation
or to otherwise dispose of, directly or indirectly, of any of the Subject Stock,
the Warrants or any Common Stock issued upon the conversion or exercise thereof,
respectively, until six months after the Closing of the sale of such Subject
Stock and the Warrant to Investor by the Company and such restriction shall
apply to any and all purchases of Subject Stock and the Warrants and Common
Stock.
3.10 FOREIGN INVESTOR. To the extent that Investor is not a U.S. person
or entity, Investor hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Subject Stock and the Warrant or any use of this
Agreement, including (i) the legal requirements within Investor's jurisdiction
for the purchase of the Subject Stock, (ii) any foreign exchange restrictions
applicable to such purchase, (iii) any governmental or other consents which may
need to be obtained, and (iv) the income tax and other tax consequences, if any,
which may be relevant to the purchase, holding, redemption, sale or transfer of
the Subject Stock. Investor's subscription and payment for, and its continued
beneficial ownership of the Subject Stock will not violate any applicable
securities or other laws of its jurisdiction.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
Investor under Section 1.1(ii) of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective against Investor unless Investor consents in
writing thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver
to each Investor at the Closing a certificate certifying that the conditions
specified in Sections 4.1, 4.2, 4.4, 4.6, 4.7 and 4.9 have been fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Subject Stock pursuant to this Agreement shall be duly obtained and effective as
of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto
<PAGE>
shall be reasonably satisfactory in form and substance to the Investor's special
counsel, which shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
4.6 BYLAWS. Section 2.2 of the Bylaws of the Company shall provide that
the authorized number of directors of the Company shall not be more than twelve
(12). The Certificate of Designation shall provide that the Bylaws shall not be
amended without the approval of the holders of not less than a majority of the
Subject Stock.
4.7 BOARD OF DIRECTORS. The directors of the Company shall be Timothy
J. Connolly, Janet E. Carson, H. Russel Douglas, Michael J. Wilson, J. William
Boyar, Raymond Betz, Daniel Dornier, Jo Lernout, Thomas Denys, James S. Cochran,
M.D. and N. Rudy Garza.
4.8 OPINION OF COMPANY COUNSEL. Investor shall have received from
Boyar, Simon & Miller, P.C., counsel for the Company, an opinion, dated the date
of the Closing, in form attached hereto as EXHIBIT " C ".
4.9 REGISTRATION RIGHTS AGREEMENT. The Company and all of the Investors
shall have executed the Registration Rights Agreement.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to each Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor contained in Section 3 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the Closing.
5.2 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Subject Stock pursuant to this Agreement shall be duly obtained and effective as
of the Closing.
6. CONVENANTS
6.1 RESERVATION OF SHARES. From the date hereof until such time as
there are no shares of the Subject Stock outstanding, the Company shall take all
necessary corporate action to maintain, or increase when and if necessary, a
sufficient number of authorized and unissued shares of Common Stock to allow the
exercise of the Warrants and the conversion of all outstanding Subject Stock at
its then current conversion price.
6.2 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to the
Investors so long as they collectively hold a minimum of 500 shares (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations) of Subject Stock:
<PAGE>
(i) as soon as practicable, but in any event no later than 135 days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles, audited by independent public accountants selected by the Company;
(ii) as soon as practicable, but in any event no later than 135 days
after the end of each of the first three (3) quarters of each fiscal year of the
Company, an unaudited profit or loss statement, schedule as to the sources and
application of funds for such fiscal quarter and an unaudited balance sheet as
of the end of such fiscal quarter;
(iii) within (21) days after the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of such month, in reasonable detail; and
(iv) as soon as practicable, but in any event no later than sixty
(60) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including budgeted balance
sheets and sources and applications of funds statements for such months and, as
soon as reasonably practicable after having been prepared, any other budgets or
revised budgets prepared by the Company.
6.3 INSPECTION. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times during the
Company's normal business hours as may be requested by such Investor and without
unreasonably disrupting the Company; PROVIDED, HOWEVER, that the Company shall
not be obligated pursuant to this Section 6.3 to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
6.4 ELECTION OF DANIEL DORNIER AS A DIRECTOR. As long as Daniel Dornier
or any Affiliate (as hereafter defined) of Daniel Dornier shall own at least
five percent of the outstanding shares of Common Stock of the Company and Daniel
Dornier has not declined to serve on the Board of Directors of the Company, the
Company agrees that it will use its best efforts to have Daniel Dornier elected
to the Board of Directors of the Company. In calculating the number of
outstanding shares of Common Stock of the Company, as well as the number of
outstanding shares of Common Stock of the Company owned by Daniel Dornier or an
Affiliate of Daniel Dornier, all outstanding shares of Preferred Stock that are
convertible into Common Stock shall be treated as if they were converted into
Common Stock of the Company. For purposes hereof, Affiliate shall mean Greenwich
as well as any person who controls, is controlled by or is under common control
with Daniel Dornier, or the spouse or children (or a trust exclusively for the
benefit of the spouse and/or children) of Daniel Dornier.
<PAGE>
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
7.2 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any shares of the Subject Stock or the Warrants sold
hereunder or any Common Stock issued upon conversion or exercise thereof).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE LAWS OF THE STATE OF DELAWARE AS APPLIED TO AGREEMENTS AMONG DELAWARE
RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN DELAWARE.
7.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.7 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service or five (5) days after deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
7.8 FINDER'S FEES. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction.
(i) Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' fee
<PAGE>
(and the costs and expenses of defending against such liability or asserted
liability) for which such Investor or any of its officers, partners, employees
or representatives is responsible.
(ii) The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.9 EXPENSES. Irrespective of whether the Closing is effected, each of
the Company and each Investor shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of this
Agreement, except that the Company shall, at the Closing, reimburse the
reasonable fees and expenses of counsel for Greenwich, in an amount not to
exceed $5,000.
7.10 ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement or the Certificate of
Designation, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.11 AMENDMENTS AND WAIVERS.
(a) Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of more than
66-2/3% of the Common Stock that have been issued or are issuable upon
conversion of the Subject Stock (excluding any shares of such Common
Stock that has been sold by the applicable Investor). Any amendment or
waiver effected in accordance with this section shall be binding upon
each holder of any Securities purchased under this Agreement at the time
outstanding (including Securities into which such Securities have been
converted), each future holder of all such Securities, and the Company.
(b) The parties contemplate that the Company will issue
additional shares of Series E Preferred Stock to other investors
pursuant to one or more agreements that are substantially similar to
this Agreement. In the event the Company proposes to issue such
additional shares, the Investors agree that they will cooperate with the
Company in amending this Agreement and any additional documents
contemplated by this Agreement, including (but not limited to) the
Warrant, the Registration Rights Agreement and the Certificate of
Designation, such that each of the foregoing documents are similar in
all material respects to the documents executed by or that are for the
benefit of any new investors; provided, however, the Investors shall
have no obligation to agree to any such amendments that would, in the
exercise of the Investors reasonable discretion, contain language
different from that contained in the existing documents that was to the
detriment of the Investors.
<PAGE>
7.12 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provisions were so excluded and shall be enforceable in accordance with its
terms.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the Effective Date.
COMPANY:
APPLIED VOICE RECOGNITION, INC.
By: /s/ RICHARD A. CABRERA
Richard A. Cabrera, Chief Financial Officer
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Telephone: (713) 621-5678
Telecopier: (713) 621-5870
INVESTORS:
GREENWICH, AG
By: /s/DANIEL DORNIER
Daniel Dornier, Chief Executive Officer
Neuer Wall 32
20354 Hamburg, Germany
Telephone: (203) 552-5214
Telecopier: (203) 552-5213
Signature Page to Series E Preferred Stock
and Warrant Purchase Agreement
<PAGE>
PURCHASE FORM
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase rights represented by said Warrant for, and to
purchase thereunder, ________ shares of Common Stock, $0.001 par value per
share, of Applied Voice Recognition, Inc., d/b/a e-DOCS.net and herewith makes
payment of $___________ in cash therefor and requests that the certificates for
such shares be issued in the name of __________________________________ and
delivered to _________________________________________________________________,
whose address is _____________________________________________________ and, if
such shares shall not be all of the shares purchasable hereunder, that a new
Warrant of like tenor for the balance of the shares purchasable hereunder be
delivered to the undersigned.
Dated: ________________________ _________________________________
Name: ___________________________
Title: __________________________
Address: ________________________
________________________
________________________
Social Security
or Tax I.D. No. _________________
<PAGE>
ASSIGNMENT IN FULL
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto _______________________________ the within Warrant
and all rights evidenced thereby and does irrevocably constitute and appoint
_________________________, attorney, to transfer the said Warrant on the books
of the within named Company.
Dated: ________________________ _________________________________
_________________________________
Address: ________________________
________________________
________________________
Social Security
or Tax I.D. No. _________________
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________________ a portion of the
within Warrant and the rights evidenced thereby, TO WIT: the right to purchase
______ shares of Common Stock of _____________________________________________
and does irrevocably constitute and appoint
____________________________________, attorney, to transfer to such extent the
said Warrant on the books of the within named Corporation.
Dated: ________________________ _________________________________
_________________________________
Address: ________________________
________________________
________________________
Social Security
or Tax I.D. No. _________________
